President Obama’s new climate plan takes some steps in the right direction, but it’s a far cry from what we must do to really slash U.S. carbon emissions. Rather than offer bold leadership, he is working the politics -- which, as Prussian Prime Minister Otto von Bismarck said in 1867, “is the art of the possible.”

To set the stage, consider how serious the climate problem is. A 2010 presentation by Shell, obtained by Greenpeace under a Freedom of Information request, shows that most of the United Kingdom will wind up underwater if we continue with “business as usual.” To avoid climate disaster, Shell suggested two scenarios: Shutting down all coal-fired power plants by 2017 and installing carbon capture and sequestration (CCS) technology on gas-fired plants; or maintaining coal generation until nuclear and wind power can be scaled up to replace it, while using CCS on coal- and gas-fired plants.

Unfortunately, I don’t believe either of those strategies will work. Nuclear power is shrinking, not expanding, in the United States and Europe, primarily due to poor economics. And CCS is many years and many billions of public dollars away from even having a hope of being commercially viable; I don’t believe it will ever pay off. Both nuclear power and CCS certainly could be part of a solution to the climate dilemma with the help of heavy public subsidies, but if we’re going to take a free-market approach, then renewables, efficiency measures, and various smart grid technologies are more likely to win out.

Unfortunately, in typical fashion, Obama’s plan fails to recognize these facts by trying to satisfy everyone.

The worst offenders

If we wanted to make a substantial and long-lasting difference, we might first rank the sources of carbon dioxide (CO2) emissions across the entire economy, and start with the biggest ones. According to one U.S. Energy Information Association (EIA) analysis from 2009 (Excel file), the transportation sector emits the most CO2, accounting for 32 percent of the total. Most of that comes from burning petroleum.

To cut transportation-related emissions, we might try to improve the fuel economy of passenger vehicles. The president has already launched an initiative to do just that, which will raise the average efficiency of new vehicles to 54.5 miles per gallon by 2025. But as I explained last September, the sheer size of the existing U.S. fleet -- more than 240 million cars and light trucks -- makes it very difficult to raise its overall fuel efficiency, which stood at just 22.5 mpg in 2010. That's particularly true when you’re only selling 13 to 14 million new vehicles a year that average 23.8 mpg on a sales-weighted basis, and the average age of cars keeps creeping up. Real cuts in transportation-related emissions, even over the course of several decades, are going to be hard to come by that way.

Instead, we might consider getting people out of their cars altogether, and switching to rail. That, too, would take several decades, but it would cut petroleum use substantially and permanently. Take a look at my calculations on what the high-speed rail system will do for California, or what transitioning the United States to rail would accomplish. Those would be really big wins in the effort to cut CO2 emissions. (And, as I argued last year, our transition to rail will probably happen anyway since Asia has taken a seeming insurmountable lead in the race for vehicle efficiency.)

Unfortunately, President Obama doesn’t seem prepared to take on a fight of that magnitude. Within the bounds of today’s Congressional politics, it probably isn’t possible. So we’re stuck with the slow grind of incremental vehicle efficiency gains.

After transportation, the next-largest sector is industrial emissions, accounting for 28 percent of the total. Most of it comes from burning coal and natural gas to generate process heat and electricity.

Low-temperature process heat -- to do things like roasting coffee, making beer, washing various materials, or canning foods -- can be generated in any number of low-carbon, highly efficient ways, including concentrating solar dish collectors, small solar thermal arrays, combined heat and power boilers, and district heating systems running on gas from landfills or sewage plants.

A large number of efficiency measures -- better pumps, boilers and heat exchangers, more insulation, heat recovery systems, and so on -- could also make a substantial difference in the industrial sector.

Such options generally offer a good return on investment and pay for themselves in a few years. It would make good sense to offer incentives for them, such as tax credits and low-cost federal loans, across the entire economy. But efficiency has proved to be a difficult thing to form federal policy around, in part because it undermines utilities’ business models.

Also, it’s not sexy, high-profile stuff that lends itself political grandstanding. “The American people demand industrial processes that are 7 percent more efficient!” doesn’t exactly stir the patriotic blood. So these options continue to languish along, making inroads only when the not-exactly-free market gives them a clear advantage.

High-temperature heat used in industrial processes is considerably harder to replace. In many cases, there just aren’t good substitutes for using coal and natural gas. Efficiency gains and heat recovery systems can be good investments here too, but don’t get much support for the reasons I just mentioned.

The remainder of industrial demand owes to generating electricity; a point I’ll return to in a moment.

So those two sectors -- transportation and industrial -- account for 60 percent of U.S. emissions.

After that is the residential sector, with 22 percent of total emissions, where the majority (41.5 percent) owes to space heating. The best way to cut those emissions is fixing leaky buildings: ceiling and wall insulation, better HVAC systems, and insulated, multipaned windows. Rooftop solar hot water systems are also a very cost-effective strategy employed seemingly everywhere but in the United States, where water heating is the third-largest residential use of energy at 17.7 percent.

We’ve known how to reduce residential heating demand for ages, but still haven’t come up with a sustained U.S. incentive for it. Most residential heating efficiency improvements are done through small programs run by individual utilities for low-income households only. (Germany figured it out years ago: If you retrofit your house to reduce your energy consumption by 70 to 80 percent, you get a mortgage rate of 1 percent -- about one-third the normal rate -- under a national program. The program is funded by the KFW, a national bank for financing, which is reimbursed by the federal government for lost interest. Except for windows, which are expensive, most of the efficiency gains pay for themselves in less than one year.)

The remaining 19 percent of U.S. emissions come from the commercial sector, where they are generated from a wide array of activities. In this sector, more efficient lighting, intelligent buildings, and more thermal efficiency are the way to go.

So that’s a brief overview of the largest sources of CO2 emissions in the U.S. economy, and what could be done about them. Admittedly, none of them are terribly sexy (apart from rail) or particularly in play in the current political dialogue.

Maybe that’s why they play relatively small roles in President Obama's new climate plan.

The President’s climate plan

The headline bit of his plan is that it will eventually impose new greenhouse gas limits on power plants, making it more difficult to keep older, dirty coal-fired plants running, or to build new coal plants.

There is real opportunity to reduce emissions from the power sector. Under a different decomposition than the one discussed above, EIA finds that electrical power generation is the largest CO2-generating sector at nearly 40 percent. Electricity to run appliances, lighting and electronics is the second-largest household energy consumer after heating, at 34.6 percent.

(Source: EIA)

But the plan’s power plant emission limits are toothless as yet, saying only that Obama will issue a “Presidential Memorandum directing the Environmental Protection Agency [EPA] to work expeditiously to complete carbon pollution standards for both new and existing power plants.” Oh, no! Not another memo!

The initiative also aims to improve the efficiency of household appliances and federal buildings, develop a higher fuel efficiency standard for heavy trucks starting in 2018, and permit an additional 10 gigawatts of renewable energy projects on public lands by 2020 -- enough to power more than 6 million homes.

It also sets a goal for the federal government to obtain 20 percent of its electricity from renewable sources by 2020.

More encouraging is its commitment to support energy efficiency measures, as part of an $8 billion package of federal loan guarantees. However, that package will also back efforts to promote “advanced fossil fuel” technologies like coal gasification, on which I am very skeptical. How much of it will go to efficiency isn’t clear.

An additional $250 million in loans will be offered to rural utilities to finance efficiency upgrades in rural homes and businesses. That’s at least an order of magnitude -- more like two -- below what we really need to invest in fixing our leaky built environment.

The plan also reiterates its support for several darlings that to date are proven losers, including “next-generation” biofuels, so-called clean coal, and nuclear power. (Coincidentally, plans for two new clean coal plants in Illinois and Texas have just been scrapped, "due to changing economics and the lack of legislation.")

Finally, the plan begins to address how the United States might adapt to climate change, and offers some typical, non-specific language about working with other countries. Not much in the way of warm fuzzies there.

To be fair, these are mostly positive steps. But they’re incremental, not terribly ambitious, and frankly, they’re not enough.

The plan hopes to fulfill Obama's pledge to cut U.S. emissions by 17 percent of 2005 levels. At most, it might cut emissions by 20 percent, not the 80 percent that researchers say is needed to avoid catastrophic climate change, according to David Victor, co-director of the Laboratory on International Law and Regulation at the University of California at San Diego.

The fact is that EPA regulation is simply too weak and indirect a mechanism to achieve the required reductions. But if Obama is not willing to use his bully pulpit to set a truly aggressive and bold climate agenda, and isn’t able to drag a recalcitrant Congress along with it, then the EPA’s awkward tools are really all he has.

That’s one reason why I maintain that clamping down on emissions is the wrong strategy.

Another is that it engenders direct resistance from the fossil fuel industry, which is firmly entrenched and prepared for that battle after decades of fighting it. Instead of trying to stuff up the tailpipe, we should focus on what fuel we put into the engine.

A third reason is that stifling emissions will not automatically create an alternate energy supply. It might just result in rising power prices and leave us struggling to maintain adequate supply while flirting with grid outages.

A better way

The best way to fight coal is to deliberately make renewables cheaper and deploy them widely. And the best way to do that is to implement a national feed-in tariff (FiT). It's simple, direct, and highly effective, especially compared to the unending legal challenges to EPA rules which are bound to confront any new emissions limits.

I proposed one way the President might implement a FiT last November. It would make an end-run around the industry’s battle lines, in a kind of “climate judo.” Like Obama’s current strategy, I think it might be possible for him to do it (at least in theory) without much help from Congress.

Germany has already proved that FiTs get the job done. Over the past 10 years, it has almost single-handedly driven the global cost of solar power down to where it’s in sight of being competitive with any other power generation source, without subsidies, by the end of the decade. Germany is now the world’s solar leader, despite having a worse solar resource than any part of the United States (except the far Northwest).

If the United States were to offer a national FiT on the German model, I have no doubt that solar PV and wind would become the cheapest way to generate power, worldwide, within a decade. Carbon-free power would ultimately win the war against emissions by virtue of its economics, and win it permanently. And if the history of fossil fuel industry delay tactics is any guide, it would win it in a far shorter time than the President’s proposal could.

I want to give Obama credit where due. His speech was good, using his bully pulpit to bring a new tone to the climate dialogue. And his plan will make some progress in the right direction within the limits of his direct authority. But alas, America will have to wait for a truly bold and audacious leader (and a more cooperative Congress) to set an agenda that will really seize the climate change bull by the horns. No-drama Obama isn’t that guy.

(Photo: Downtown Calgary, Alberta on June 21, 2013, after the worst flood in its history.) (Wilson Hui/Flickr)

Chris Nelder is an energy analyst and consultant who has written about energy and investing for more than a decade. He is the author of two books on energy and investing, Profit from the Peak and Investing in Renewable Energy, and has appeared on BBC TV, Fox Business, CNN national radio, Australian Broadcasting Corp., CBS radio and France...
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